On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The six handpicked topics for this week are:
- AMD Earnings
- Qualcomm Earnings
- Lattice Earnings
- Apple Earnings
- Austin Zoholics
- Microsoft AI Announcements
For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Daniel Newman: Hey everybody, we are back with another episode of The Six Five Podcast, episode 167… 167 times we’ve gone round and round, you and me, six topics, five minutes each, minimum news, lots of analysis, what we do. It’s Friday morning, Pat. It’s been a great week. I did not get on an airplane this week. Feels good because the next, I don’t know, eight, there will not be one where I do not get on an airplane. It’s freaking event season, Pat, and earning season is kind of wrapping, at least the biggest part of it, and we’re going to be talking a lot about that this week. How are you doing today buddy?
Patrick Moorhead: I’m doing great. Yeah, this is the calm before the storm. I’m three straight weeks on a plane. Well, actually I look at contiguous weeks. I’m gone for three straight weeks with less than 12 hours between stops. Good news is, it’s long enough to come in, repack some stuff, take some stuff to some daily cleaners, but no, this is my favorite time of the week even though I’m a little bit worn out after the week. This is the highlight. I don’t know why, Dan. I don’t know if it’s because it involves my bestie. It’s just riffing without restraint. I mean, we literally say what we want without getting canceled within cancel rules, and I like it. I really do.
Daniel Newman: Are you still doing that, Pat? Is that still a thing? Are people still doing the cancel thing? I feel like we got bored of it and moved on.
Patrick Moorhead: Yeah, less canceling going on. I think when one side started getting canceled too, it became out of vogue, which is kind of funny.
Daniel Newman: Oh no, you mean… okay. You mean, we’re not all getting along still? That’s too bad. That’s too bad. Well, the good news is with the rise of the machine, we can all come to the conclusion that our days are numbered, so let’s make the most of those that we have left. Is everybody out there watching? Do you know in fact, if this is Patrick and I or is this Pat bot, Dan bot? I may or may not be constructing a plan to build the Dan bot. Pat, will you build a Pat bot, because I think we could give people 24 by seven, Patrick and Daniel, and I can’t imagine anybody that wouldn’t want to watch it. Sometimes when I’m on Zoom, I just turn on the self view, and I’m enamored by how good I look. Joking, joking. But in all serious, we could go around the clock with our insights. 10,000 blogs. What do you have? I have like 150,000 tweets. We could be entertaining the world with our technology thoughts for at least another year or two before people would run out of new content.
Patrick Moorhead: Dan, that’s pretty scary. I’d like to go in and hopefully can improve myself. That would be great. Lose less weight. Yeah, sorry, lose more weight. Look better. Say smart things.
Daniel Newman: I can do that.
Patrick Moorhead: Say smarter things. Yeah.
Daniel Newman: I can lose less weight. You know how to do that. I know how to do that. And today’s my beautiful wife’s birthday, so if anybody is out there that knows her, just wanted to point out that I said happy birthday. She’s a spry 28. What’s a good year to say? I’m supposed to make her younger, but not make it so young that it’s weird. What is… 35? I don’t know.
Patrick Moorhead: Thirties is good, Dan.
Daniel Newman: Thirties is good. I’m embracing my forties by the way, Pat.
Patrick Moorhead: Yeah.
Daniel Newman: I am. I turn 42 later this month. Send gifts to Patrick on my behalf, or just make donations to a charity that actually uses the money. Well, which is rare anymore these days. All right, we got a great show for you today. We’re going to cover a bunch more earnings. I know. I know. I know. The Six Five, we’re supposed to be covering tech, but earnings are the groundswell. It’s the ground truth of what’s going on with these tech companies. We got AMD, we got Qualcomm, we got Lattice, we’ve got a remarkably surprising good result from Apple… are really surprised. Pat’s going to dive deep into Zoho, one of the companies that came to town and had an event this week, we all got together. There’s some photo evidence of this, Patrick, out there on the interweb.
And then we’re going to talk about more Microsoft AI announcements. I don’t know if you watched this morning the CEO of OpenAI was on CNBC squawk Box, watched a lot about that. The question is, “Are the machines going to take over?” Well, let’s just say we’re making progress. We’re making progress, but I’m not entirely sure. So quick disclaimer, since we are going to talk a lot about earnings today, this show is for information and entertainment purposes only. And while we will be talking a lot about publicly traded companies and their equities, we are not equities advisors and we are not providing any sort of investment advice. Please do not do anything based upon what you hear hear, here on The Six Five. Patrick, this was a long and emotional and drawn out, but hey, I’m the best moderator in the world other than you. Who says that by the way? Who says that all the time?
Patrick Moorhead: Definitely Jake. Definitely Jake Allen.
Daniel Newman: Please. I mean we do really like that show, but I hold his perception of being the best, in contempt, because I believe you are the best moderator in the world.
Patrick Moorhead: Okay, Dan, I know you’re saying that because you just want me to say you’re the best moderator.
Daniel Newman: No, no, you’re the best. You’re the best.
Patrick Moorhead: No, no, no, you’re the best.
Daniel Newman: You’re the best. Listen, it’s not all about me, Pat.
Patrick Moorhead: But sometimes it’s about you.
Daniel Newman: It is sometimes all about me. So, all right, listen, rock and roll. AMD, Pat – a company we are both bullish on, but how did they perform this quarter?
Patrick Moorhead: Yeah, they performed pretty much exactly as they said and versus expectation. They beat on EPS by six and a half points, and they beat on beat/met by revenue… and by the way, that beat/meet is within 1% for me. They beat on revenue by 0.84%. And going into that, I think that’s pretty good, particularly when you look at the market, right? What they’re walking into is an extremely light PC market, and overall, the server market is difficult. On the plus side, they really crushed it and embedded and really showed the street, again, one of the reasons that they acquired Xilinx was, bringing in Xilinx makes the highs less high, but makes the lows less low. And that’s exactly what we’re hitting here. The PC and the server market are in the sh**s, and Xilinx really, really helped them. The number, they absolutely crushed it for growth and embedded.
Yes, I get it. It still has some acquisition numbers in it, but 163%, even though the server market was down, they still had double-digit epic sales. Lisa made a comment on the call, that she said that, “Yeah, we think the conditions are right that we could continue to gain more server share this year.” That’s in alignment with what I’ve been saying about about 2023. Intel has a much stronger roadmap in ’24 and ’25. One of the things that Lisa did do – and we’re going to talk about this even when it comes to Qualcomm – is Lisa gave a little bit of a hint about the future of AI. She called it on the call “The company’s number one strategic priority”, and Lisa doesn’t mince words, she doesn’t get ahead of things. She pretty much… what Lisa says happens. They formed an AI group under ex-Xilinx CEO, Victor Pang, which by the way is an ex-AMD guy, ex-ETI guy. And he has been working for a while cross-collaborating with the team of how to move this forward.
And AMD is not new to AI. Actually, most AI inference is done on a CPU, although I know it’s not cool to talk about that. But when it comes to discreet cards, whether that be training or inference, NVIDIA owns the day. If they don’t have 90%, 95% market share, I know you’ve pointed this out in your market watch articles, it’s still a lot, but AMD has had a lot of success with National Labs where it’s sure it’s about flops, but also as they move to AI, it’s about AI. And this MI-300 accelerator that’s coming out. I’m really interested to hear about.
The number one thing I want to hear about, is the software strategy. I 100% believe, and I told a Forbes columnist this, the print, not the web folks like me, that I fully believe that AMD can feel the right hardware. The question I have is on the software. We don’t do rumors on this show, but Bloomberg did bring out a rumor, interestingly enough when I was giving this interview, that said Microsoft and AMD are going to be collaborating an AI accelerator. So I’m going to leave it there. I’ve had more to say. I might come back and loop around, but that’s my overall thoughts.
Daniel Newman: Why don’t we do rumors?
Patrick Moorhead: I just did it. I just did it.
Daniel Newman: Why not?
Patrick Moorhead: But we can dive in. Dan, why don’t you… why would Microsoft ever want to collaborate with a company on, and not just have it be an all NVIDIA shop?
Daniel Newman: I don’t know. I mean, price, performance, flexibility, open source, scale, ESG, lots of different reasons. Right now the pot of gold is very, very large, and everybody’s trying to figure out how to wrap their arms around it with AI. We’re going to see massive growth, mid double-digit CAGR for AI over the next several years according to numerous different surveys out there. And with the speed and trajectory, I am actually, between you and me, not sure that those surveys are fully caught up to the opportunity that actually is AI. I think we’re going to see bigger CAGR growth, and again, AI is going to go from being sort of a vertical or a technology adjacency to an overarching theme, like digital transformation, which by the way, I know a guy that knows a little bit about this.
You know, quickly… you hit a lot of the key points to me. This was probably business… I kind of think I quoted it as business as usual for AMD. They put forth a number, they beat it, they guided, a little bit soft. I think Lisa’s being conservative right now. There’s still a lot of uncertainty in the macro, and it’s a responsible CEO that’s going to look at that situation and say, “I’m going to put numbers forth that I’m very confident that we can achieve and if the market gets a little bit better, and we’ll beat it.” And I prefer that to overly optimistic. There’s still too many uncertainties out there. I mean, didn’t another major bank fail this week? It was FRC. I think there’s three or four more teetering. We raised interest rates again.
And let’s be clear people, all these things are intertwined. This is not like, “Oh, the bank issue’s over here.” The banks are where the money is being held for companies that are paying and operating and investing. Not to mention, banks themselves are buyers of all, net buyers, of a lot of technology. And right now you’ve got an entire subset other than the big three or four banks that are all teetering. They’re all on stilts right now. Our economy’s a little bit on stilts because I don’t think the market is fully caught up to all the macro things going on.
So back to a AMD though. AMD’s performing well, it’s performing fine. This quarter was, like I said, business as usual. Everything that’s going on in the macro, especially the PC numbers, all took place and that’s to be expected. The overall consensus from Lisa and other CEOs, has been that the back half of this year will be better for semis. And by the way, I believe semis, because they sell ahead of when the OEMs actually ship units. We’ll start to see some improvement in semis probably before we’ll start to see it in devices sans Apple. Apple’s numbers are always just mind-boggling to me.
The biggest thing for AMD though, and what I put out there in MarketWatch, is that NVIDIA’s in a really unique juxtaposition right now, because NVIDIA has close to 90% of market share. And NVIDIA has enjoyed this wild lead and competitive advantages across the board, but everything within NVIDIA has been built around CUDA. And CUDA is its proprietary language. It requires that companies basically commit and lock into this environment, but you’ve got the rise of new competition. We talked about the Microsoft rumor, we talked about what’s going on with AWS and Inferencia, Google TPUs. There’s an advancement there. And, of course, you’ve got Intel and AMD that are saying, we’re not going to go away and not play in the space. You’ve got startups like Groq who we are investor in. We’ve got SambaNova and others that are trying to build lower cost accelerators that can do large language model workloads at a much lower cost, and are much more efficient from a power perspective.
So even if the market gets bigger and NVIDIA keeps growing at a really high growth rate, I would not be surprised if they start to cede share. This is the interesting inflection point, and I think AMD could be the company that capitalizes first. It has the popularity, it has the woo, it has the investor sort of backing, and people really seem to like it, and it seems to have a plan. Now whether this comes to fruition, we shall see, but good quarter for NVIDIA. I’m going to keep us moving here because I could rattle on and on and on about this, but let’s talk about another company, Pat, that has a story to tell in AI that maybe isn’t getting full credit for it, but also a company that’s huge for handsets, and that’s Qualcomm. Qualcomm is a company – and Pat, you and I over several quarters have been really ringing its diversification plan.
A year ago they pivoted from kind of their four buckets to three. They used to be handsets, RFFE, their front end automotive and Internet of things. They took the RFFE business and kind of merged it across, kind of horizontally like I talked about with AI, because it’s part of every part of their systems. But now they’ve got handsets, automotive and Internet of things. We all again expected a fairly soft quarter from Qualcomm. We know chip shipments are down, we know handset shipments are in a lull. We saw Samsung’s dismal results. I mean they just were… what did their profit drop? Like 95%. It was some amazing number.
Patrick Moorhead: Yeah, memory. Memory is tough. It’s a tough business to be in, and particularly if it’s memory for smartphones.
Daniel Newman: Absolutely.
Patrick Moorhead: And displays and stuff like that.
Daniel Newman: Absolutely. But here’s the good part of the Qualcomm number, is they really were within range across the board. They came to the top end of their revenue guidance. They were in the range of their EPS guidance. Of course, they were down on a year-over-year basis. But this was down from those kinds of peak periods of time from shipments for over the last few years of mobile devices. Handset business continues to be softer, a little bit like the PC business. Like I said, Apple’s the outlier, and we’ll talk about that later in the show. Automotive has been a really great growth area for the company. Something that definitely was a lever to pull on of positivity. And then IoT continues to be a strong one plus billion on a quarterly basis. 1.4 this quarter. And it’s an area that I don’t think most people really think about for Qualcomm, but the ambient connectivity of technology in smart cities and buildings and factories and how Qualcomm’s technology plays a role, is very, very interesting.
The licensing business, of course, is going to slow down when you’re shipping less handsets, although they do get a piece of all the Apple business, still. And so that’s a part that actually helps prop up the business. I think the one thing, Pat, you and I’ll probably want to lean into here though is, that the handset business is a cyclical one like PC. And so it will come back, it will go down, it will come back up and it will rise. And the demand for mobile handsets is going to be driven by a few factors. One is, just refresh cycles. Refresh cycles naturally create more demand. But of course, in an economic slowdown, people will wait longer to refresh. AI though is going to create a whole ‘nother wave, because what Qualcomm is building in their handsets and devices is going to be inference at the Edge that can do a lot with these large language models, even when you don’t have connectivity or when you have connectivity that doesn’t require any interaction with the Cloud, Pat. And this is a really huge thing.
You and I were at Mobile World Congress, we were able to witness a 1 billion parameter large language model being run – stable diffusion – on a device that wasn’t connected to the internet.
Patrick Moorhead: Yeah.
Daniel Newman: Pretty impressive. But AI is going to be used for things also Pat, that are very practical. Things like privacy and security, things like making systems reliable and making sure you get the benefits of AI on your device even when you got limited or no connectivity that your device is still able to take advantage of AI. And, of course, AI has a very impressive… everything from their image sensors to their VPUs, to their security tools that are all going to use AI, that are going to make handsets more secure.
Interestingly Pat, we haven’t heard much from Apple about their AI strategy. Of course, they’ve got the AI sensors and stuff in their devices, but nothing yet about what they’re actually planning to do from a generative standpoint. Qualcomm, I think, really does believe, and I think, Pat, I have to say I agree, that the Edge… we’ve talked about it with PCs, and by the way, at Qualcomm’s in PCs, we haven’t seen the best of what they’re going to offer yet, which is something I’m more bullish on.
But we are just starting to hear about what this Edge inference is going to mean, and with large language models, the opportunity that’s going to create. I think there’s going to be a huge sell-through of devices when people can start to do 10 billion plus perimeter models on their devices without connectivity. And by the way, this isn’t just infused into handsets. This is going to be infused into automotive, which has been a huge growth area for Qualcomm. It’s going to be infused into IoT for ambient and sensing technologies, and it’s going to be embedded into their PC. So Pat, I’ve talked too long. I got a warning message from our producer, so I’m going to pass it over to you here. That’s my thoughts on Qualcomm.
Patrick Moorhead: You did a great breakdown and I want to thank Qualcomm CEO, Cristiano Amon, and CFO, Akash, for the time that they gave both of us breaking down the earnings. You broke it down really well. The one thing I want to remind everybody is that they did beat Wall Street expectations on revenue, and they miss and/or met, on EPS. It was really the future guide that was a challenge. Everybody knew that the smartphone market was down, but it was that guide that did this. I want to point out, too, that automotive 20% year-in-year growth, and they are likely gaining share there. And the company did talk about how it likely gained share in handsets, so you know, you can only control which you can control, and put enough investment in the future to make it happen. And one of those big investment areas, like you said, was AI.
And when I look at the case for Edge, Edge AI, it’s very simple to me. Whether you call it the law of gravity, wherever the data is created, is the best place for that compute to be. And that’s just historically been true for 40 years. So if you’re capturing all that data, you want to do something. If you want higher levels of privacy and security with lower latency, that’s just the way that you’re going to do it. So this isn’t a stretch for me. And whether it’s tablets, PCs, smartphones, XR headsets, the cars, industrial IoT endpoints, generative AI is going to make its way there. I mean, we’ve already seen intonations from Google. We’ve already seen, heard from, what Microsoft is going to do there. We see some little cookie crumbs in studio effects. Imagine when the entire weight of Microsoft that we’ve seen primarily in Bing so far, puts their weight into Windows.
So what’s the Qualcomm case? If this new generative AI could shift preference for the device makers, and maybe even allow them to charge more, that means the Qualcomm can charge more, or they’re going to take share, if they are the best person with the capability for the technology. Without a doubt, Android, hands down, I mean they’re dominant in that position. Then the question is between Android and iOS, where Tim Cook, last night on the call, made a few esoteric comments about it not being ready. Let’s be careful, which you would expect, particularly when I think Apple’s likely behind. It has not likely not been a focus and they’re not going to show up until it’s perfect. So, net net, I think Qualcomm is very well-positioned for generative AI. And if they play their cards right, and their partners do, they’ll probably pick up margin dollars.
Daniel Newman: Well, there you go. There you have it. And Pat, you and I did it again. We did the first, spending 28 minutes on two, and now we’re going to go lightning round-
Patrick Moorhead: Let’s do this baby.
Daniel Newman: For the next four. But Pat, let’s talk about companies that just kick ass in any economy. And this is where I always love the market takers. Let’s talk about our friend Jim Anderson, CEO of Lattice, and the performance of him and his team this quarter.
Patrick Moorhead: Yeah, just another boring record quarter, Dan.
Daniel Newman: The first Emmy company in the middle of a major glut.
Patrick Moorhead: No, exactly, exactly. I mean, it just blows my mind how well they did. So record revenue, 12 consecutive growth quarter, 70% gross margin, 70% record op bank, net income growth was amazing. Just what a yawner. Some things that came out that I like, 50% of the design wins included one of their software stacks. That’s a big deal. That to me is growth from going from a homogeneous environment and FPGAs to something that’s more of a solution. And that was one of the biggest challenges with FPGAs is, how do I program this thing? And by putting 5G, putting ORAN, putting automotive, putting industrial IoT in vision, and a lot of other stacks, that just means, that’s just more value.
And by the way, you’re competing then with ASICs, you’re competing then with microcontrollers, which increases your TAM. So, last comment, lots of room to grow. Avant? Avant hasn’t even showed up yet. So final, final comment, May 15th, Investor Day, The Six Five podcast… actually the Six is going to be there. Dan is going to be there driving. I am going international, and not going to be able to make it, but I will be there in spirit, Dan, hugs and kisses.
Daniel Newman: Yeah, I appreciate you taking half the credit and doing none of the work. Just kidding, everybody. Just kidding. We’ve gotten each other’s back in the past. Sometimes it’s me, sometimes it’s the Six, sometimes it’s the Five. And of course, since we’re expanding now, we’ve got new faces in the firm… did we mention on the show that we added an amazing new show connected with Diana Blass that’s going to be launching really soon? She’s a rockstar, and I look forward… anyways, I don’t want to have the Lattice earnings fall too far from the grace they deserve. But Pat, look, how do you beat and beat and beat and beat and raise, when every other semiconductor company is literally hanging by the thread on the chinny-chin-chin? I mean, this is a company that just does things right. And, of course, the programmability, the flexibility that they offer, and the fact that they’re often an accompanying semiconductor in many, many designs enables them to get scale.
They’ve won a lot of designs and even in the condensed or shrinking markets in OEMs, and they’re still growing, which – Pat, by the way – what does this mean for them when the trend flips and all of a sudden all the other companies are growing really fast, they’re growing right alongside. So I actually think this is a company that is in an incredibly good position. They’re aligned to 5G, they’re aligned to AI, they’re aligned to IoT, they’re aligned to a robotics, they’re aligned to server, they’re in all the right spaces, and they have a story to tell. They basically diversified themselves out of most of the complicated parts of their business and consumer. They got a little bit of exposure there and that was probably the weakest part of their report.
But also Pat, they’re expanding margin, which means they have a lot of pricing power, which means the company can continue to make more money on even less revenue. So even if growth slows down, they’re able to make more dollars out of every dollar that they sell. It’s just a very well-run company, Pat. And of course at a billion, it’s different than when you’re at 50 billion, and the ability to continue these types of growth from where they’re at now, to 5 to 10 billion a year in revenue. But you got to like their prospects Pat, and you got to like the fact that they’ve added TAM consistently, and that they’re running a really good race. So, like I said in the beginning, I’ll say it at the end, congratulations to that team, that was a great report. That was one of the best semi reports of this quarter by far. All right, Pat, let’s pivot to one that you and I both enjoy talking about. Let’s talk-
Patrick Moorhead: Are you going to try to be not a fanboy, please?
Daniel Newman: Well, I was going to be a fanboy of Apple, so that you could be the jerk. No, I’m not going to be a fanboy. Look, I said it in my tweet and you could interpret this as a good or a bad thing. The company is like, a sleight of hand. There was not a single indicator that iPhone would have a good quarter, based upon what was going on in the macro, based on even the IDC numbers on PC shipments. Everything that was out there about devices was indicating that this should be a really bad quarter. Now again, Apple’s approach to guide is late. They don’t guide far out. They also-
Patrick Moorhead: They don’t guide. They haven’t guided since 2020.
Daniel Newman: They indicate in their earnings calls, a feeling for the next quarter. But they do not specific… you’re right. And they don’t give you more than what’s kind of their thought process over the next 90 days. And again, they don’t even give you specifics. So this leaves the analysts having to basically guess. And so, their beat may or may not actually have been any sort of beat of what their expectations were, but what the analysts could come up with, they were expect – And Pat, by the way, just $94 billion a quarter in revenue, they beat on the top. They beat on the bottom. Again, they beat the analyst expectations, not the guide. They expanded margins and they were pretty stable across all categories.
Now again, this doesn’t mean I don’t think they’re most, that this is the company that requires the most regulatory out of any company on the planet right now and getting none. But that’s another story for another day, because let’s instead regulate VMware, because that’s the big problem. But anyways, the areas that I was looking for Pat, really is – well, I’m watching closely the service on this company, because this is the big pivot. You saw they had this really interesting inflow of… are they a bank now? I mean, what’s happening there? Is Apple actually a charter bank or is that a partnership?
Patrick Moorhead: No. I mean, they’re definitely getting in… well, no. I don’t know.
Daniel Newman: It’s okay. I didn’t actually look into it yet either. But when you hear about inflows of deposits, then you go, wait, is Apple a bank? But I mean they’re getting into financial service products for sure… FinTech products. I mean, they always were with Pay. But services, the investments they’re making in Plus and TV and gaming, they’re getting across the board. I mean look, they were a little soft on iPad, the Mac business we know is crappy, and they were a little bit soft on that. But Pat, I guess what I was trying to explain is it, where is the sleight of hand? How do you beat by $4 billion worth of phones versus what everybody had been able to calculate? So the calculus of all these analysts, and there’s a lot of analysts on the equity side that follow Apple, calculated 48.8 and they came up in at 51.3.
Where’s all this demand coming from? Is it India, is it China? And it’s a really interesting inflection right now because you know, you saw Qualcomm’s mobile numbers, really, really soft. And of course Apple’s buying volumes ahead. The timing means Qualcomm’s numbers may have come in quarters back, and now Apple’s numbers are coming in on finished product, and now they’re sitting on inventory. But there was nothing to indicate in the market that the consumer’s strong. And for Apple, it’s consumer strength that drives the volume of purchases. And all we keep hearing about is the market’s on stilts, consumers are depressed, their savings are gone, but they’re still buying $1,600 iPhones. So that’s my puzzle point, Pat, I’d love to get your take on it… this was a really pretty good quarter and the street is rewarding Apple right now, big time, for this result. I didn’t see it, I’m going to be honest, I just didn’t see them doing this well.
Patrick Moorhead: Yeah, and by the way, they’re ripping right now this morning. They’re number two on my watch list. So the way that I look at this is, is really balanced. And by the way, there were a lot of questions where hey, they could rip it or they cut. Where I’ve wound up based on listening to the transcripts and talking to a bunch of people… by the way, shout out to Jon Fortt and Morgan Brennan. I did CNBC literally as they were reporting at 4:30 Eastern.
Daniel Newman: And you crushed it.
Patrick Moorhead: Thank you. I think there was pent-up demand where if you remember, iPhone production, their workers were getting beaten with metal poles and they were essentially striking. And I think this was pent-up demand. There were talks about strength in India. There was also… Tim Cook did an interview with CNBC, literally as I was sitting there, and they were talking about strength in China, but nobody could figure out how that even makes any sense whatsoever. So anyway, they grew 1% year-on-year in smartphones and they did beat expectations by about 5%. If I look at what’s in store for the future, if all of that pent-up demand is swept out, I can’t imagine them doing very well next quarter. But you know, you never know. I mean, I look at Qualcomm’s forecast and there’s always a 60 and 90 day delay between the silicon and the actual production and shipment of a unit.
And I don’t know exactly, having distribution hubs when revenue is recognized by Qualcomm, but I can’t imagine the juggernaut continuing. And the other macro point is everything else went down below expectations. Service is below expectations, MAC, well below expectations; iPad, met or a little bit below expectations; wearables below expectations. None of these are good signs, but none of these are self-inflicted, and they are driven by the market. At WWC, I’m looking forward to what they talk about with respect to XR. They’re late to the party related to generative AI, and they really needed to get their act together. If this were a time – Apple doesn’t have to be first, they just can’t be two years late, like they were with something like the Fablet. Those are my thoughts.
Daniel Newman: Well that was Fab-ulous analysis. A nice job on CNBC yesterday. You are in full miss. All right, so let’s go to the next thing. Zoho… you spent the day yesterday in Austin with Zoholics. I spent the evening before at the part where they served the drinks and the food and that was pretty fun. It was good to see you and all of our friends out there. But Pat, what were the big… did they talk about generative AI, Pat?
Patrick Moorhead: So Dan, I do want to be like you when I grow up. There were some highlights here. So if you’re not familiar with Zoho, they’re a leader in an end-to-end enterprise SaaS suite. They have their own top to bottom infrastructure. They do everything themselves. They do have, obviously, APIs to services, if you prefer to use things like Gmail. But they really have developed where I think everybody wants to go, which is a full stack. So big discussions here was on ChatGPT. The second one was their upmarket growth, and the third one was a new service for entrepreneurs. They did go GA with their new browser, but I don’t think that was nearly as important. So they announced an integration of ChatGPT with Zia, which is essentially their bot or helper or assistant that’s already on the market. And they came out with 13 generative AI applications that were enhanced by it.
In fact, the naming says everything. So for instance it’s Zoho CRM with generative AI. And then they added four or five new capabilities to analytics, to word processing, to mail, to social media, to products called assists, landing page SalesIQ, that’s CRM notebook, and DataPrep, which is exactly what it is, and meeting. So really cool. My workspace VP, Melody Brue, will be doing the detailed take-down, but I think the timing’s good. I don’t think they needed to be first, but I do think they will likely be first with the complete rollout. But like all of this stuff, this is the beginning. I want to get in, I want to kick the tires, I want to see how useful it is. By the way, this is with an alliance at first with OpenAI. In fact, you bring your API key and it leverages OpenAI.
They did talk about their strategy around this, which I think was important in their approach. And we’re going to be writing more about that. Just in lieu of time, I’m going to go right to what I think is pretty cool, which is this new public beta of this product they have, that Zoho does really well with small business, but now they’re intercepting people as they’re forming business, where you can actually go onto this service, and form your business, get EINs, get a website domain, get a telephony service, publish your information to Google Maps. And also they’ve added a simplified way to do analytics, a simplified version of spreadsheet, a total mobile solution for CRM finance and action items. Exactly as you might expect.
Daniel Newman: I wasn’t there Pat. I’m looking forward to reading your write up. And of course six of the Futurum group analysts were there. It was great to have such a large team. We are a Zoho user in our organization. Been impressed since day one about this size, scale, and scope of Zoho One, I think the company’s been ambitious with leveraging the power of AI and I’m eager to sort of see how generative AI could play into this. Look, generative AI is going to democratize so much capability inside of operations, and I think this week’s, the IBM story Pat, about them not hiring around gen AI because of AI doing jobs. I think there’s two sides to this story that’s a really important nuance here.
Generative AI is going to, A, help companies be more efficient and stop spending money on things, companies fiduciary responsibilities is not spend money on things that doesn’t have to in order to do business. So hiring for the sake of hiring to just meet the good of hiring is not really good use of productivity. So what we need to do is figure out what that next wave of growth is. So getting rolled out of this should be also part of an additive story about growth. So that’s the second part of this equation that no one seems to quite have their arms around it. What are the growth opportunities that are going to come out of all of this implementation of automation, of generative content, of thought leadership, of applications, workflows?
So a tool like Zoho I would expect on the small to mid-size businesses is going to be an enabler. And of course, how much does this actually take the company into the future into being more able to participate in larger enterprise, which has been something Zoho has been trying to do over the past several years. So I’m looking forward to reading up on everything. I wasn’t there so I can’t add much to what the content was yesterday, but it’s always a good event, and Pat, you and I always appreciate that they come here to Austin to be part of it.
So, all right, let’s talk about some updates from Microsoft, Pat. OpenAI and Bing continue to move forward. And I think, was it… and just let me make sure I got this data right Pat, but this week basically Microsoft announced that the AI part, Bing, is in open preview now. So this means that where you and I, because we have, we’re insiders, we’re able to get early access, we’ve been playing with this for some time now, people more broadly are going to be able to take advantage of this. And there was some data that was revealed. Because I think a lot of people are wondering… Bing is I think, the third-largest search engine, technically speaking, and that the company obviously sees a $2 billion per 1% of market gain. That’s what they shared on their finance day, during their initial launch of their OpenAI partnership.
So if Microsoft can go from single digit to say 20%, I think I calculated as something like a $26 billion a year annual financial opportunity for the company, that’s pretty significant. But the problem with Bing – and Pat, you and I might differ in our opinions, is when I used Bing versus Google, at least in the traditional search days, it just didn’t cut the mustard for me. It was not good enough in terms of being able to find what I needed to find. With OpenAI, with Chat GPT-4 being embedded inside of Bing, it did change the equation. So now the company came out talking a little bit about what this has meant for the organization. They gave some data. I think they said that in the last three months there’s been over half a billion search queries in Bing. And that during this period of time they’ve seen their growth in users hit over 100 million. I don’t know that that’s daily actives, that would be pretty remarkable if that’s where it’s at. But that’s a really, really big growth rate for the company.
The company has also been very focused on making Bing visual, meaning that Bing… and that’s one thing right now if you play with Bard, it does not do. It should, and it will. Pat you and I were talking about how cool it’ll be when they integrate a YouTube engine to be able to ingest something like a podcast. But first and foremost, how can you do more visual. So they’re doing image and video with Bing right now. They’re also adding more and more multi-session. So meaning you can go back into your histories and continue conversations. That’s something that’s being added. And by the way, here’s probably the third thing that’s really interesting and that we haven’t talked a lot about is where does the developer fit into all this? For the last three or four years have we talked about something as probably a great career opportunity more than developing? If you can do something in your career, you should learn to code.
Patrick Moorhead: Yeah.
Daniel Newman: Coding will be the future, and as long as you know how to code, you’ll always be employable. Boy does that feel like a different conversation today. I’m not saying that being a great coder won’t still have an opportunity, but with all the speech-to-code, and the capabilities that are being discussed right now, even if it doesn’t work today, how long of a horizon do we really have, before the speech-to-code or the augmented code that’s being done with natural language processing through these large language models becomes really, really good?
And I don’t know if you’ve read across the internet yet, Pat, but some really good coders have written some stuff. I’ve read some sub stacks and other things that they’re using this. So where it used to be GitHub, and you were sharing open source, and nobody codes anything from scratch anymore. That’s kind of the thing. And now you have… you’re taking things that are already sort of pre-built, and you’re then adding co-pilot, and then you’re adding the capability for large language models in generative. We’re going to build tools really, really fast, and it’s going to happen really quick. I wrote an article on it. It’ll post today on the Futurum Research blog. And by the way, I wrote it with GPT-4. I dictated some notes after I read the release with all the data, and I pushed it through GPT-4 and then I took it live because I don’t know, I’m a bot now. What the hell? All right, Pat, over to you.
Patrick Moorhead: I use Microsoft Bing and Edge AI features every day. And Daniel, you were right when you first said it is, in fact, a hundred million daily active users, which is pretty incredible. Two big messages here. First of all, opening this up to everybody and open… I mean it’s literally open. Anybody can get access to this. You don’t have to be on a list. That, in itself, shows the degree of maturity and the only reason they’re calling it a preview is because it’s not perfect. And preview allows them, if they see somebody pulls up something that’s just wrong, it’ll probably be preview for a long time. That’s that. That’s just my guess to be conservative.
What I really liked about this, it hits some of the things, some of the snags in my own experience. And not that it’s all about me, Daniel, but sometimes it’s about me. And I do think that being an active user of this technology, I have a higher bar for that. So first of all, the Edge helper that’s out there just didn’t cut it for summarizing documents for me. Now it works better with PDFs, it works better with websites. And I saw it actually will work with YouTube video links. And I am so excited and I think people are going to be so excited to use this. They also integrated images into… I used to have to do separate image versus text, but now you’re going to be getting image results back, which again, it’s simplification, right? People don’t necessarily want to go to a separate place in text versus imagery.
So anyways, net net, I think we have to use this announcement, at least I am, that Microsoft is in the lead with consumers on this. Not that Google won’t catch up, but when you open it up to the planet and the other company hasn’t, what are you going to say? Right? It’s just a fact. Not even necessarily opinion. So I love this drag race. It’s all about innovation. Innovation is good, innovation lowers costs, innovation increases capabilities, and we have an amazing race here in consumer, and very clear, this is consumer, not commercial. I am doubly excited to see… I want to use Office 365 with generative AI.
Daniel Newman: There you go, Pat. What a show. What a show. We did it, we came back, we were running a little bit late, but we got back on the rails my friend. What a great show. Earnings Palooza, once again, is over for a quarter. We will have a smattering of earnings. We’ll have the Cisco, Dell, Nvidia, Marvell, and a handful of others, that will pop, but the big weeks a flood of earnings. We have survived it yet again. And Pat, now we’re going into event season.
And by the way, not just other people’s events, but our events, The Six Five baby. The Six Five Summit coming the first week of June, Pat. We couldn’t be more excited to have Hok Tan, CEO of Broadcom, as our kickoff speaker. And then we’ve got an amazing lineup, over 45 clients that are participating yet again this year, Pat. So many sessions, so many topics. You can bet AI is going to be a big part of the conversation this year. And we are going to be focusing on navigating the rough waters that are our economy, but with a bit of optimism, a bit of purpose, a bit of prescriptive advice for how people can move forward. Pat, you want to say anything to these people before I send them off?
Patrick Moorhead: Take care. I don’t care whether… actually we got to go. Thank you. We love you. Take care.
Daniel Newman: All right everybody. You heard it here. Hit subscribe. See you later.